Protecting an Inheritance With a Prenup in Ontario

If you have received an inheritance, or expect one, it is natural to wonder what happens to it if your marriage ends. Many people assume it is automatically safe. For most inherited property that is largely true, but there is an important exception for the family home, and the details of how it is handled matter.

A marriage contract, often called a prenup, is one way couples set their own rules in advance. This article explains the default rules for married spouses, where an inheritance fits, what a contract can and cannot do, and how common-law couples are treated differently. It is general information, not advice on your situation.

How an inheritance is treated when a marriage ends

In Ontario, property acquired during a marriage must generally be split equally when the marriage ends for any reason, and courts can divide it differently only in very special situations. This process is called equalization.

To work out equalization, you subtract debts and excluded property from the property each spouse owned on the date of separation, then do the same for the date of marriage. A negative result counts as zero. The spouse with the larger result pays the other half of the difference.

Property a spouse inherited, other than the family home, is excluded property in that calculation. In plain terms, an ordinary inheritance such as money or an investment account is generally kept out of the sharing. How income or growth on that inheritance is treated can depend on the facts, so it is worth confirming with a lawyer if a large amount is involved.

The inherited family home is different

The exception that surprises people is the family home. An inherited family home does not count as excluded property and must be divided equally unless the spouses agree otherwise, for example in a marriage contract.

This means that if you inherit a house and the two of you then live in it as your family home, you cannot assume it stays yours alone. If protecting that home matters to you, this is the area where a written agreement can make the biggest difference.

What a marriage contract can and cannot do

The Ontario government describes a marriage contract as a legal document signed by couples before they get married to protect their rights if they split up, including rights to property. These contracts can cover support, property division and who moves out on separation. They cannot say who has decision-making responsibility or parenting time for the children.

Once signed, the contract must be followed. If the spouses separate and disagree about it, a judge may need to decide.

Making the contract hold up

Both spouses must sign the contract in front of a witness, and the witness must also sign. Any later change must also be in writing and witnessed. A casual promise or an informal arrangement made later does not change the contract.

Ontario's guidance advises that each partner use a different lawyer and that the partners exchange financial information before signing. This is more than a formality. A court may set aside a contract, or part of it, if a party failed to disclose significant assets or debts, if a party did not understand the nature or consequences of the contract, or on other contract-law grounds.

• Disclose your inheritance and other assets honestly and in writing.
• Make sure each of you has your own lawyer.
• Use clear wording about what is protected and what happens if it is mixed into joint property.
• Sign and witness the contract properly, and do the same for any later change.

If you are common-law

Couples in a common-law relationship can sign a similar document called a cohabitation agreement. This matters because the equalization rules are for married spouses. Common-law couples are not legally required to split property acquired while living together. Household items and other property belong to the person who bought them, and they do not share in the increase in value of property brought into the relationship.

A common-law partner who contributed to property the other spouse owns may still have a right to part of it. Unless the other spouse agrees to repay the contribution, the claimant may have to go to court.

What to do next

• List what you own, what you expect to inherit and what is already in your name.
• Keep records showing where inherited money came from and where it went.
• Think about whether any inherited home will become your family home.
• Raise the idea of a contract early, well before the wedding.
• Speak with a family lawyer, and be aware your partner should use a different one.

If you are already married and a separation is near, remember there are time limits. The claim for equalization must be made within six years of the day of separation, or two years from the day the divorce is final, whichever comes first. A lawyer can confirm how these rules apply to your inheritance.

Frequently asked questions